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Information Asymmetry and Corporate Cash Holdings
Author(s) -
Chung Kee H.,
Kim JangChul,
Kim Young Sang,
Zhang Hao
Publication year - 2015
Publication title -
journal of business finance and accounting
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.282
H-Index - 77
eISSN - 1468-5957
pISSN - 0306-686X
DOI - 10.1111/jbfa.12173
Subject(s) - information asymmetry , cash , asymmetry , business , operating cash flow , investment (military) , monetary economics , economics , econometrics , finance , physics , quantum mechanics , politics , political science , law
This study analyzes the effect of information asymmetry on corporate cash holdings. Using various measures of information asymmetry, this study shows that companies that operate in environments with higher information asymmetry have smaller cash holdings. This study continues to find a negative relationship between information asymmetry and corporate cash holdings from a battery of sensitivity analyses, including the tests using different regression methods and the difference‐in‐difference tests employing brokerage‐firm merger and closure events. On the whole, the results support the monitoring cost hypothesis of cash holdings over the investment opportunities hypothesis.